Wanted: New ways to lift a sluggish global economy
This year’s Nobel Prize for economics hints at the need for fresh ideas to spur growth. The winner, Jean Tirole, brings a deeper look at what motivates people to invest in their future.
Jean Tirole, a Frenchman at the University of Toulouse, has won this year’s Nobel Prize for economics, and for good reason. Much of his work focuses on how each person’s “quest for moral identity” can shape economic behavior. And the Prize is also well-timed. The world economy has slowed to a crawl. Policy makers are looking for fresh ideas like Mr. Tirole’s to better motivate people to invest, consume, innovate, retrain – or whatever it takes to spur growth.
The latest forecasts for the global economy paint a gloomy picture – a drop in growth to only 3.3 percent in 2014, possibly slowing to 2.4 percent a year in coming decades. The managing director of the International Monetary Fund, Christine Lagarde, describes these forecasts as “the new mediocre.” Most countries are in a search of “growth drivers,” or what Ms. Lagarde calls a “new momentum.”
As normal policy tools like lower interest rates seem less useful, experimental economists like Tirole bring a deeper approach. They look at how people manage their values and beliefs, such as altruism or selfishness, in particular circumstances. Such research is not new. In the 18th century, Adam Smith wrote about “moral sentiments” defining economic interests. But today’s research is more refined and analytical. In a recent paper that he co-authored, for example, Tirol finds people overestimate the value of material goods and social status to their life satisfaction while underestimating how good deeds and the quality of relationships can bring better “returns.” He and other economists talk about such choices as “identity investments.”
If the world economy has a bright spot, it is the United States, which still has a relatively modest recovery. A new global survey by Pew Research may explain why. The poll shows Americans stand out in one regard: More than 57 percent disagree with the notion that a person’s success is defined by forces outside their control. By comparison, more than half of people in other countries are more likely to believe their fate is out of their hands. Americans are also far more likely to say that hard work can determine whether someone gets ahead in life.
The Pew survey finds an unusually high pessimism in the world about a better economic future for the next generation. Perhaps more people need to see “fate” as something in their control. It also suggests policymakers and economists need to do more work on what drives people in their “identity investments.” Economics may be the dismal science, but its results do not need to be dismal.